The Delaware Court of Chancery denied a shareholder’s motion to preliminary enjoin a premium-generating merger between two financial services companies solely on the often overlooked balance of the equities element in Koehler v. NetSpend Holdings, Inc., No. 8373-VCG, 2013 Del. Ch. LEXIS 131 (Del. Ch. May 21, 2013). Despite determining that a shareholder demonstrated a reasonable likelihood of success on the merits and irreparable harm, Vice Chancellor Glasscock refused to enjoin a premium-generating, cash merger between NetSpend Holdings, Inc. and Total Systems Services, Inc. solely because the balance of equities favored denying the injunction. After concluding that the NetSpend shareholder was reasonably likely to succeed on the merits of her Revlon claim—based primarily on the board of directors relying on a relatively weak fairness opinion, foregoing a post-agreement market check, and agreeing to a don’t-ask-don’t-waive clause—and that shareholders faced irreparable harm because the negotiations and proposed deal did not provide shareholders with a reliable indication of the value of their shares, the court concluded that the balance of hardships alone favored refusing the injunctive relief sought.
Specifically, the court explained that even though it was a slim possibility (because the merger agreement contained a severability clause that foreclosed Total Systems Services from walking if the merger was enjoined), an injunction would allow for a delay that could possibly cause the deal to be lost if a material adverse change occurred that would release Total Systems Services from the contract. Accordingly, if this were to happen, NetSpend shareholders would almost certainly lose out on a premium-generating transaction because no other offers emerged in the three months since the deal was publically announced. The court’s decision to deny injunctive relief completely on the often overlooked balance of the equities prong gives corporate defendants added ammunition in defending motions to preliminary enjoin premium-generating mergers.